High court strikes down Valdez tax on oil tankers

MILLIONS LOST: City had imposed it to make up for declining property taxes.

June 15, 2009 

WASHINGTON -- The city of Valdez will have to return millions it has collected in taxes since it began assessing a tax on oil tankers that on Monday was found to be unconstitutional by the U.S. Supreme Court.

The court on Monday struck down as unconstitutional a tax imposed on oil tankers nine years ago by the city of Valdez, the port town of 4,500 at the end of the trans-Alaska oil pipeline. Polar Tankers Inc. operated five double-hull tankers for its parent company, Conoco Phillips, Alaska's biggest North Slope oil producer. An estimated 24 oil tankers and four other vessels were covered by the tax.

Just how much money the city will have to return is unclear, though, and the city would not disclose that information Monday. In February, Valdez City Manager John Hozey said the city anticipated collecting about $8 million this year in revenues from the tanker tax -- or about 20 percent of the annual budget of about $40 million.

Since Polar first challenged the tax, the money paid in taxes has been held in escrow so that Valdez couldn't spend it while the suit made its way through the courts, said Mayor Bert Cottle.

The city's tanker tax was first imposed in 2000 to compensate for declining property tax revenue from the aging Alyeska oil storage and loading complex.

"The last few years, maybe three, that money has been paid directly to the court, to prevent any problems," Cottle said, adding that "it's not a blow to the economy. We haven't spent the money."

Polar's parent company, Conoco Phillips, had no comment on the outcome of the case. A lawyer for the company, Charles Rothfeld, said that he sees broader implications for the decision: Local governments will be unable to assess property taxes on vessels within their taxing jurisdiction.

"It's clear that for property taxes, you cannot simply impose a property tax on a ship because it uses your port," Rothfeld said.

However, Rothfeld also pointed out that the court's 7-2 decision was based on two fundamentally different points of view on the constitutionality of the tax. The lead opinion, written by Justice Stephen Breyer, found that the tanker tax was unconstitutional because it does not apply to other, similar property -- just oil tankers. The vessels subject to the city tax are "not taxed in the same manner as other personal property," Breyer wrote, and the tax is therefore the kind the Constitution's "tonnage clause" forbids without the consent of Congress. The opinion is the first written on the tonnage clause since 1935.

But others on the court, including Chief Justice John Roberts, said that the lack of a uniform tax on all similar property doesn't matter. The Constitution prohibits states from assessing tonnage charges on ships unless approved by Congress. That particular clause of the Constitution, which also bars states from entering treaties with foreign countries or engaging in war, essentially bans ports from assessing taxes on vessels entering the port, based on their tonnage. It doesn't prohibit dockage fees or other assessments for using the port or its services.

"If states wish to use their geographical position to tax national maritime commerce, they must get Congress's consent," Roberts wrote.

The city had one of the best Supreme Court attorneys in the country: former solicitor general Ted Olson. In its arguments, Valdez maintained that the tankers and their crews use local roads, police, the airport and other city services and should contribute to their upkeep. The city, which does not have a sales tax, relies mostly on a raw fish tax, a hotel and motel tax, and fees for its operating revenue.

In their dissenting opinion, Justices John Paul Stevens and David Souter wrote that they believe the constitutional ban on tonnage charges refers to charging a fee for arriving and departing from a port. The state already taxes "a wide variety of property used in producing oil," they wrote. "No federal interest is served by prohibiting Alaska or its political subdivisions from taxing the oil-bearing ships that are continually present in the state's ports."

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